Home » Big Publishing, Bookstores » Last Chance for Publishers to Level the Playing Field

Last Chance for Publishers to Level the Playing Field

14 November 2012

From Digital Book World:

The returnability of books is a cancer that has been consuming the publishing industry for decades. Publisher after publisher has succumbed to its relentless arithmetic. Yet, book people cling to the belief that they are not vulnerable to the forces that destroyed their predecessors. In all the commentary about the merger of Random House and Penguin I have seen nothing written about the consignment model of bookselling that has doomed countless publishers over the past fifty years.

The merger offers the captains of those great companies an opportunity to change that model. If they are sincere about leveling the playing field against Amazon, the abandonment of a returns-driven business model may be the only way to do so.

. . . .

Trade book publishing has been in decline since the end of World War II. Industry boosters cite increased sales volume over that period to support the view that all is well, but much of the growth can be attributed to normal population increases and inflation. For the real story, one has but to look at the long roll call of publishers that have been forced to sell themselves to conglomerates, merge with larger publishing houses, or go out of business entirely.

. . . .

There’s not enough cash in publishing. There never has been, and there never will be. Why? Because the consignment system of selling books is bleeding the publishing industry to death. Try as they might, the smartest people in our field have failed to find a way to make money under an arrangement that makes books returnable to publishers.

Publishing is one of the few industries that sell merchandise on a fully returnable basis. The custom was initiated to overcome booksellers’ wariness toward the work of authors who were unfamiliar to them. If the customers didn’t buy those books, booksellers had the right to return the merchandise for credit. The practice was eventually extended to all books, whether by new authors or old, and it really took off with the paperback revolution. Paperback publishers discovered that the easiest way to ship their books was through magazine distributors. As most periodicals are monthly, the distributors simply collected unsold books along with unsold magazines at the end of every month.

. . . .

I have spent years advocating the abandonment of the consignment system. For one thing, it is a horrifying waste of paper and other resources. For another, it has forced all of us into negative, defensive, and ofttimes bizarre ways of speaking and thinking about books. Nobody talks about how many copies of a book were sold, but rather how many did not get returned. Royalty statements are designed to deceive by the omission of critical information. Returns data are buried in a column called “Cumulative Net Sales,” and the concept of holding back royalties against returns is so inflammatory to authors that publishers have built their royalty statements around hiding that information.

Worst of all, the consignment system is the principal cause of hostility between bookstore and publisher, and between publisher and author. Publishers condemn bookstores and chains for their profligate ordering. But why should bookstores restrain themselves? They have, after all, nothing to lose, as they can always invoke the privilege of sending back what they can’t sell. To meet the demand of these bloated orders, publishers have no choice but to overprint. Then, when the books fail to move out of the stores, the publishers are compelled to eat huge returns.

Link to the rest at Digital Book World and thanks to Karl for the tip.

One of the problems with a bad business structure is that other participants in the ecosystem build their businesses around the bad structure.

Whether correct or not, Big Publishing sees itself in a death-match with Amazon. PG doubts Amazon sees things the same way.

Big Publishing’s only unique advantage is physical bookstores most of which are having a very difficult time keeping their doors open. The end of the consignment/returns system would sink bookstores, including Barnes & Noble, in droves (in PG’s indubitably humble opinion).

In some ways, Big Publishing/bookstores reminds PG of Ahab tied to the whale.

 

Big Publishing, Bookstores

36 Comments to “Last Chance for Publishers to Level the Playing Field”

  1. Hmm… I’ve read of other, more logical reasons for the reason the returns system was instigated (related to, oh, wanting to keep booksellers alive through economic depression).

    Whatever caused it, I agree with PG. (“One of the problems with a bad business structure is that other participants in the ecosystem build their businesses around the bad structure.”)

    Bookstores are consignment shops. Jewelry stores or boutiques might sell a few things on consignment, and I think there’s a reason pawn shops tend to prominently display “We buy gold!” signs.

    It’s like the freelancer that pays the bills only from one client. What happens when that client goes under, cuts costs, no longer has projects, or happens to lack anything for the freelancer to do for a month? (Or if that client suddenly stops paying?)

    As long as everything’s going smoothly, the freelancer’s happy—has little administration and bookkeeping and only has to worry about remembering one client’s style preferences. But the moment that freelancer’s cut loose, he or she has no idea how to get more work, where to seek it, and then there’s the issue of getting it before the bill collectors come a-calling.

    Actually, that sounds kinda like the employee model, too.

    Anyway, as long as everything works, why question the bad practice? And then when things stop working—well, it couldn’t have been that practice that’s at fault, because that practice worked! For [time frame]!

    *sigh*

  2. Yep, my first thought was that striking at the returns system is like striking an open wound.

    Still….

    Two other thoughts:

    One is that small booksellers are more likely to actually buy books if they have a good discount.

    The other is that: the only reason returns stick around is because publishers are dependent on booksellers. If the folks who predict the death of paper are right, booksellers will become yesterday’s news to publishers. And that will just naturally break the bond. No conscious rebellion needed. If you don’t care, you don’t maintain.

    So the problem for publishers is not the returns system, but weaning themselves from big book distributors altogether.

  3. OT again…

    Do people here have an opinion about releasing an ebook at certain times of the year. Would it get “lost” in December, or would the growing number of ereader sales help sales? Or is it all a wash? Thanks.

    • I can guarantee you that you will sell no copies until you release the book.

      Otherwise, while bookselling is generally seasonal it’s probably impossible to frame a general rule about when you should release a book. If the book has some strong seasonal element (e.g. it’s a Christmas book) releasing it around the holidays will possibly get some boost from the book being on the New Releases list at the right time. Otherwise I kind of doubt it will have a lot of effect on an e-published work.

      • It’s a soft release, so I’m thinking release date won’t matter. Word of mouth is what will help it take off. It’s not a Christmas book, so I might just give myself a few more weeks for a proper edit, and to relax and wait until Jan.

      • Marc’s totally right about not selling anything if it’s not available. *grin*

        And this it anecdotal but several indies I know, including me, see a surge in sales Jan. and Feb. as people spend those holidays gift cards and cash. If your book’s ready, you’ll want to upload it before Christmas/Yule/Kwanzaa/Hanukah/Solstice/SomeOtherLateDecemeberHolidayI’mForgetting.

    • I would want it to be a month or two before Christmas when ereader sales pickup. That way it has a chance to get a few sales and show up in the cross listings (people who bought this also bought xyz) of other books.

      Put it out as soon as you are done your edit.

      • As far as sales go, I can tell you this. I own a handmade jewelry business (5 yrs-just showed a small profit last yr *happy dance*) Anyhow, in the online and craft show jewelry biz, Jan-March is dead sales wise.

        However, just in the year I’ve been tracking/learning how to market books both online and IRL, I can tell books sell differently than other types of retail. There will probably be a rise in book sales before and during Christmas for gifts and such. But I suspect there won’t be a huge drop in book sales after Christmas because these same people will have Amazon gift cards to spend and still pick up that random discount paperback while shopping at the grocery store.

        Books, in general, are an all year selling item. What I’ve noticed is people like to stick to their genres, authors, formula stories, and read them over and over. Hence why publishing try to ride trends all year long.

        Jewelry differs, in that people want to look different from others, so when you make jewelry you always have to come up with the next new thing every month. They check out your website/craft booth wanting to see your new designs and expect to see them quickly. People know books take longer, so they don’t expect that so much, and they like familiarity in books as it’s often a self-insertion (so happy endings, nothing too crazy for mainstream, cough*50 shades*cough)

        Soooo… I say as soon as you’re comfortable with your edits, publish. You’ll need every day to build visibility.

        • However, most authors I know (self included) see a dip in sales during the summer…

          • Probably cause most people are busy playing outside. Makes sense. My full-time job as a medic gets mega busy in the summer with all the kids out of school and people doing crazy sports and overheating, etc.

            Too busy in the sun to read as much.

          • I saw a boost in summer, and a dip when school started. This suggests my market is… college students and/or teachers, who get in their romance-reading when they can? I also still get weekly fluctuations that trend to “the night before the work-week starts is a good time for me” (usually Sunday night, but sometimes Monday night on long weekends) and “the weekend is usually kinda poor.” So… My market reads on the bus/train/commute to work/school, and not during the weekend?

            By that theory, I likely appeal to college students, I guess; commute on the bus, go out and party on weekends, buy more books in the summer.

  4. Great commentary, PG. I agree!

    I also continue to wonder at this idea that Publishers are dirt poor and eating Top Ramen in the basement of a tenement.

    Maybe that’s true for the smaller Publishers, but the last I heard, the Big Six were eating lobster out of their expensive Manhattan based suites, and pulling in yearly profits in the billions.

    This is such a strange, perpetuating myth, that Publishers are poor. When they are, in fact, quite rich.

    • Some of them are rich right now. But this is a boom and bust industry. Due in quite large part to the returns system: bookstores insulate themselves from financial malaise by using returns to generate cash flow in a sense. Also, a major flop can really hurt a publishing house. Tom Clancy, after a string of home runs, had a book turn out to be a real dog and it drove his publisher into reorganization, IIRC, because of the massive returns hit. The actual print runs of even majorly pre-ordered books get smaller all the time because of this lurking fear, which means fewer books are in the system and ready to buy, which means smaller sales, etc. As the article says and PG amplifies, it’s a terribly, terribly debilitating system.

      • Well, Marc, I’m afraid that once again, we disagree.

        They are making enormous profits hand over fist due to digital sales right now. In addition, they have huge backlists.

        They give multi-million dollar advances all the time. They have enough cash on hand.

        This is a multi-BILLION dollar industry that likes to pretend it is poor.

    • I suspect the problem is they aren’t making *enough* money. The bigs are all part of comglomerates, so all bonuses and future employment are likely tied to the holy Quarterly Earnings Report. So while they may be making gobs of money at a 6% profit margin, someone is pounding a desk and demanding to know why they aren’t delivering a 14% return.

      • @ Chong – probably true. I bet they have overlords they need to keep happy.

        But I guess why this issue bugs me is I think that both Publishers and agents deliberately perpetrate the myth Publishers are poor, as a way to excuse the terrible way they reimburse and treat authors. I’ve seen it all over agents blogs: poor, poor Publishers. They have to drop contracts at a moment’s notice; they can only give a 2% royalty rate; advances have dropped to $2,000 because this is such an impoverished industry.

        Bullocks.

  5. “The end of the consignment/returns system would sink bookstores, including Barnes & Noble”

    — I disagree.

    In the ’80s, computer MFGs sold computers to resellers with “price protection”. Something just as wacky as the publishing industry’s return system. There was a down turn in the early ’90s and three MFGs remained standing. The FIRST thing they did was repeal price protection. Resellers had to think before ordering, and they had to actually sell the stock they ordered. A much healthier reseller industry evolved.

    Getting rid of the return system will:

    1) force B&N and indie bookstores to know the books they’re selling and therefore have recommendations at the clerk level.

    2) encourage some form of direct sales by the publishers themselves (James Patterson, Lee Child, etc can be pre-ordered directly without stores) thereby making the surviving publishers more responsive to readers and more willing to take risks on new authors and/or innovative titles.

    Peace, Seeley

    • My concern about the survival of a lot of bookstores is that they wouldn’t survive the process of being forced to become much more sophisticated in their ordering.

      If the bookstore guesses wrong and orders far more copies of a particular book than it can sell, it takes a huge financial hit by having to sell the overstock at a loss.

      If the bookstore guesses wrong and orders way too few of a bestseller, upset customers who can’t find the book they want to buy may exit to Amazon permanently.

      Even if the bookstore guesses right on sales, its cash flow profile becomes much more precarious because a lot more cash is tied up in non-liquid inventory.

      Every bookstore owner and manager in the US developed his/her talents in a world where inventory management involved making sure there were no empty shelves without considering inventory costs. Well-designed inventory management systems can certainly help, but there are bound to be expensive mistakes in a business that can’t handle too many of those.

      • Speaking as a corporate CFO, I wish I could be more optimistic…but I’m not.

        I agree that the returns are killing the print industry. But if publishers can’t afford this, as huge business, how can the booksellers? Even B&N (largest, if not most healthiest of the retailers) can’t handle errors in ordering — especially now. Have you been in a B&N lately? More open floor space, more music and games, less books. And that’s WITH the return policy in place.

        The problem is, book inventory isn’t like hardware. You can’t look back at how many rakes you sold last fall to estimate your order this year. Every book is unique, and if someone could predict breakout novels, Shades of Gray would have found a publisher in a heartbeat.

        No link in the supply chain can afford to have the return policy change. Period.

        Unfortunately, this is a Gordian Knot problem.

        The answer? Darned if I know. Accountants are better with past history than the future.

        • Makes me wonder if local, indie bookstores might gain a small position of strength by promoting more of their local, indie authors. Of course they’ll have to stock the books people see on TV, but I do know there’s a feeling by many people I know that they want to downsize sometimes. If communities know they can meet more authors from their hometown, buy their books, get signatures and get a taste of how bookstores used to be 30 years ago… I wonder if some bookstores might be able to hang on with a duel method like that? It wouldn’t be easy, but if they worked in partnership with authors, they could help each other. It would be interesting to find out.

        • The computer industry I referred to has always been a fashion industry. Note the sea change when the iPad came out. That constantly changing fashion is what caused price protection in the first place. Actually, big chains like B&N and Costco use price rebates to blow out books today.

          For publishing, two things define the bookstore of the future: 1) In-store print on demand, the hardware is not much larger than an big copier at Kinkos. Imagine the limited editions, the special editions (an author could search/replace city & store names if he/she wrote carefully enough).
          2) Bookstore managers who cultivate clients they know and understand. The Poisoned Pen in Scottsdale is very good at this today. There are few dusty books on their shelves.

          Peace, Seeley

  6. BTW: Did you guys catch that it was written by Star agent Richard Curtis in 1992? He points out in the prologue that the piece could have been written today…

    Curtis says, “The essay you are about to read was written in January, 1992.”

    Peace, Seeley

  7. Returns, publishers can’t live with them and can’t live without them.

    There is a very simple way to get rid of returns. Go digital. Don’t make a copy of book until it is sold. Returns aren’t really an issue with ebooks and POD. Or rather returns become the same as in any other industry where the returns are items sold to the end consumer who is unhappy for some reason.

    Say it with me: The current book business is a zombie. It lumbers on blindly, unaware that it is dead. It also appears to eat the brains of those who get too close to it.

    • George from Toronto

      “Don’t make a copy of book until it is sold”

      I agree with you William. And now the future of bookstores have a new form of security on the horizon –with the new POD machines Espresso POD see your book while its made machines that bookstores will be stocked with in the future.

      Here: http://www.youtube.com/watch?v=Q946sfGLxm4

      Powells in Oregon already has one. So do certain universities (like U of Toronto where I am). Mostly indie books and public domain are printed but soon–I predict ALL paper books will be ‘printed and bound while U wait’ deals. And of course ebooks will be available too.

      The neat thing about these machines is that they print full color covers and the entire book within a few minutes if not faster. One can imagine going into a bookstore and ordering your book on one of their computers (or via your cel phone to be availalbe for pick up when you drop in, or via mail). Bookstores will probably be gift/cafe/wifi shops with only a few art or megabestsellers on the shelves (“known” hits) and a few espresso machines for the majority. Or it will be just espresso machines and a cafe. Who knows.

      But it bypasses the problem of returns etc. The booksellers will only print what has been paid for.

      If this happens I will personally miss walking into a large bookstore with thousands of volumes but I think a younger generation won’t even notice. Of course rare and collectible volumes will still be available but I think those will be in used/collectible bookshops.

      And here’s the thing for bookshop owners: espresso machines are quickly going down in price. I talked to one who owner who said they will be around $50,000 each. That is doable for many shops.

      here’s their website:

      http://ondemandbooks.com/ebm_overview.php

      (no I do not work for the company, I just think its a really neat idea).

  8. George from Toronto

    Here’s an article on the Powells macine (with pic):

    http://www.portlandmercury.com/BlogtownPDX/archives/2012/05/04/more-on-powells-new-espresso-book-machine

    here it is in action (taped by some happy bookbying tourists–notice the speed and the attractive cover it produced too!):

    http://www.youtube.com/watch?v=E-BTx-GoNyE

    BTW sel published books are serviced with these too and in the U of Toronto one –you can go and order copies of your book as few or as many as you want.

  9. “My concern about the survival of a lot of bookstores is that they wouldn’t survive the process of being forced to become much more sophisticated in their ordering.”

    But isn’t sophisticated ordering the basis of retail sales, or do other sellers have return options, also?

    Women’s apparel, groceries, toy stores for example.

    Just curious.

  10. The traditional publishing contract in Japan pays the author at the time of the print run based on the number of books printed, not sold. Think about how that changes the entire equation. The royalty accounting is dead simple, to start with, and publishers do a larger number of smaller print runs, keeping supply and demand foremost in their minds.

  11. The returns system would indicate an over-supply of books and bookstores. If there are lots of returns, then we have too many books and too many retail outlets for the prevailing prices. I’d expect dropping the returns system would reduce the number of bookstores and shelf space.

  12. Maybe I’m confused, but I thought the returns system was related to a lawsuit, maybe in the early 1980s, that mandated bookstores be allowed to return books. Am I wrong, PG?

    • It’s a lot older than that, David.

      • I figured you’d know. So if the returns system is based on a court decision, how can they just change it because they want to?

        • Sorry if I wasn’t clear, David. My understanding is that the unlimited returns policy goes back to the Depression when it was used by publishers in an attempt to prevent their bookstore distribution system from disappearing.

          I could be wrong, but I think it’s an industry practice that publishers could change if they wanted to do so.

    • Maybe you’re conflating that with the fact that back in the eighties and especially the nineties, publishers wanted to break the returns system, the common wisdom was that they couldn’t unless they all did it at once (because those who did it first were screwed if they stood alone):

      And if they all decided to do something like that all together they’d get sued under antitrust laws.

  13. “In some ways, Big Publishing/bookstores reminds PG of Ahab tied to the whale.”

    PG, that scene has been seared in my brain for 45 years, and that is an extraordinary metaphor.

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